Parse Furion: Convert NFTS into ERC-20 mirror tokens for AMM exchange and lending, trying to break the NFT-FI trilemmas
As the NFT market moves toward DeFi, issues surrounding NFT pricing, capital utilization and risk management have become increasingly prominent and have evolved into the NFT-FI trilemma, constraining the growth of the NFT financialized market size. In particular, many NFT-FI programs are often designed to overestimate the poor liquidity of NFT in a bear market, compromising risk management by offering high interest rates to attract borrowers, and ultimately the platform has to face the burden of bad debt. However, despite the cold winter NFT is in, the NFT trading market continues to emerge and the need to break the NFT-FI trilemma, new liquidity solutions and financialization exploration never wanes. Furion, a one-stop platform for NFT that combines mirror tokens, index tokens, AMM, peer-to-peer pool lending and other features, offers its answer.
(Disclaimer of interest: The author has no interest in the project and this article is for research sharing only)
Mirror Token: NFT → F-X Token & Index Token: FFT
1.Separate NFT subject liquidity pool
Furion provides a separate liquidity pool for each NFT underlying, where users can store or lock their NFT in the corresponding liquidity pool and mint an F-X Token as a mirror token of that NFT in ERC-20, where the “F-X Token” in “X” in “F-X Token” is the NFT marker. For example, the mirror token obtained from Azuki’s liquidity pool is the F-Azuki Token.
If you choose to store NFTs in the corresponding liquidity pool, you will receive 1000 corresponding F-X Tokens. Upon burning these 1000 F-X Token, the user can redeem any NFT in this corresponding liquidity pool, not just the one in the initial storage. A fixed fee of 100 platform tokens FUR will be charged as part of the platform’s revenue when the F-X Token is destroyed for NFTs.
If one chooses to lock the NFT in the corresponding liquidity pool for the time specified by the user at the time of lock (up to 30 days, but extensions can be obtained), the user receives half of the F-X Token at a discount, i.e. 500. The lock will also be charged a monthly lock fee of 150 FUR. This NFT will not be exchanged or sold during the lockout period and can only be redeemed when the user burns 500 F-X Tokens. If the NFT is not redeemed during the lockout period, the platform will not lock ownership of the NFT after the lockout ends and will release it to the public pool. In addition, 300 F-X Tokens will be collected as a penalty in the process and the remaining 200 F-X Tokens will be sent to the user.
2.Aggregate similar but different liquidity pools of NFT subjects
Distinguished from using the NFT marker itself as a liquidity pool, while taking it a step further as a separate pool, an aggregation pool can combine multiple mirror tokens of the NFT marker as a pool to aggregate the liquidity of different but similar NFT markers. The criteria for aggregation may be that the project parties are a common family or multiple copycat disks of a particular project, etc. For example, the NFTs under Yuga Labs are aggregated as a pool, which may include F-BAYC Token, F-MAYC Token, F-BAKC Token, etc. Users deposit their F-X Token into the aggregation pool and mint to get FFT. Users deposit their F-X Token into the aggregation pool and mint to get FFT.
The FFT is backed by a package of NFTs and represents the index of the combined NFT subject. By burning FFTs, users will be able to retrieve their portfolio of F-X Tokens. A fixed fee of 100 FURs will be charged for the destruction of FFTs. The number to be minted or burned is determined by both the reference price of F-X Token and the fair price of FFT.
The reference price of F-X Token is obtained by Furion’s pricing prophecy machine, which aggregates historical transaction data of NFT and combines temporal and spatial parameters. The fair price of an FFT is equal to the total value of the FFT divided by the circulating supply of FFTs. Where the total value of FFT is equal to its collateral, and if the circulating supply of FFT is 0, the fair price of FFT is equal to 0.01 ETH, which also means that in the first casting, 1 FFT = 0.01 ETH.
AMM exchange for F-X Token, FFT, FUR
When turning NFT into an ERC-20 mirror token, the liquidity of trading against ERC-20 is obviously much more efficient than NFT. Similar to the usual AMM trading grid, Furion Swap also combines every two Tokens into a trading pair, and then follows the x*y=k formula with general traders and LP providers. Swap charges 0.3% of the trading volume as a trading fee, of which 99% is rewarded to LPs and 1% is platform revenue.
Depending on the F-X Token obtained for different NFT underlying, there are unlimited combinations of LP Token that can be formed into Swap, which provides the possibility of direct trading between different NFT pairs. In addition, LP providers are able to use LP for liquidity mining in addition to transaction fees in order to be rewarded with the platform token FUR.
Users can earn interest income by lending out F-X Token, FFT or other ERC-20 tokens representing different NFTs or packages, or borrowing them after using them as collateral.
Unlike BendDAO, which is limited to blue chip asset lending, Furion will first divide the lending pool into three tiers based on the price level and liquidity trading status of F-X Token/FFT, from low to high risk: collateral asset pool, cross-tier asset pool and isolation asset pool, covering as many assets as possible. Tokens in the low-risk pool serve as collateral to borrow assets from this pool as well as from pools with higher risk than it, and vice versa. In addition, depending on the price volatility and liquidity of the tokens, different assets are assigned a collateral factor of up to 0.9, such as 0.9 for USDC, 0.85 for ETH, 0.6 for Blue Chip F-X Token, etc. The maximum amount a user can borrow depends on the weighted collateral factor, but the collateral value can be increased by staking more platform tokens FUR. Each 1 million veFUR can increase the collateral value by 0.1%, up to 2.5%.
The borrowing rate depends on the asset utilization rate of the NFT subject.
Borrowing rate = prime rate + asset utilization rate x given rate;
lending rate = asset utilization rate x borrowing rate, where the prime rate is 3% and the given rate is 20%.
Liquidation occurs when the loan amount plus all future interest exceeds the maximum amount of the collateral. When liquidation occurs, the liquidator repays up to half of the loan for the borrower and receives a 5%-10% discount on the value of the collateral from the borrower as an incentive. In the actual liquidation, according to the risk level of the lending pool, assets with better liquidity and lower risk are prioritized for liquidation to reduce the bad debt rate of the platform, i.e. the liquidation order is Collateral Asset Pool > Cross-Tier Asset Pool > Isolated Asset Pool.
For example, when User A borrows a certain number of F-MAYC Token using 1000 F-BAYC Token as collateral. At this time, according to the Furion pricing prediction machine, if the value of 1000 F-BAYC Token is 80 ETH, the collateral factor of F-BAYC Token is 0.6, the value of certain F-MAYC is 30 ETH, and the monthly interest payment is 0.8 ETH, when the value of 1000 F-BAYC Token drops from 80 ETH to 51 ETH When the loan plus interest (30+0.8=30.8 ETH) exceeds the maximum value of the collateral (51*0.6=30.6 ETH), the 1000 F-BAYC Token of this A user will face liquidation.
At this point, if liquidator User B pays half of User A’s loan interest and (30.8/2=15.4 ETH), he will be able to obtain F-BAYC Token collateral worth (15.4*1.05=16.17–15.4*1.1=16.94). At the same time, User A’s collateral value is restored to (51–16.17=34.83 ETH — 51–16.94= 34.06 ETH) greater than the loan interest and 30.8 ETH, and the debt is restored to a healthy state.
In addition, there is still a 24-hour protection process for liquidated assets in the collateral pool. After liquidation, users can still buy back their assets within 24 hours at 1.2 times the liquidation price. So back to the above example, (16.17 ETH, 16.94 ETH) worth of F-BAYC Token will still be temporarily locked in the platform for 24 hours, as long as within 24 hours, User A pays (16.17*1.2 = 19.404 ETH — 16.94*1.2 = 20.328 ETH) to get back that part of the F-BAYC Token.
Furion has its own set of prophecy machine rules to build the price curve of NFT by collecting all the historical transactions of NFT market. Simply put, if the price of most of the N trades in a given time period falls within a certain price range, then the lower limit of that price range is used as the reference price for the F-X Token. However, in fact, many NFT’s history of transactions is not active, often only a few, and may be traded at a wide range of prices.
In addition, Furion also introduces the veToken model, which allows users to stake FUR to obtain veFUR to enjoy governance, platform fee revenue, improved lending utilization, etc.
Currently, Furion’s main network is expected to go live in the first quarter of 2023, and the project is still in a very early stage, while the overall NFT market is in a winter and the market is shrinking and depressed, and the NFT-FI market is actually smaller. For blue-chip NFTs, the volume cap is predictable, the need for that much of a lending market is unknown, and competitors are evolving.
Moreover, the massive liquidation of BendDAO shows that blue-chip NFTs are still much less liquid than expected in a bear market. Despite Furion’s classification of mirror tokens by liquidity, price, etc., collateralized asset pools consisting of mirror tokens of blue chip assets may not be immune to a bear market, and for cross-tier and Isolated asset pools with the net asset value is small but a larger number, it is feared that it will also be difficult to avoid taking on bad debts due to serial wear and tear once they suffer a vicious liquidity depletion. In addition, without higher lending rates, how to break through BendDAO’s first-mover advantage and attract blue-chip users over to collateralized lending after the project goes live is no small challenge.